PROPERTY

CASE TITLE Makati Leasing & Finance Corp., v. Wearever Textile Mills, Inc. G.R. NO.
L-58469
PONENTE De Castro DATE May 16, 1983

DOCTRINES 1. Tumalad Doctrine: Although a building is by itself an immovable property, parties to a

contract may treat as personal property that which by nature would be real property, and it
would be valid and good only insofar as the contracting parties are concerned. By principle
of estoppel, the owner declaring his house to be a chattel may no longer subsequently
claim otherwise.
2. The characterization of the subject property by the contracting parties is indicative of
intention and impresses upon the property the character determined by the parties.

FACTS The case at bar is a petition for review on certiorari of the decision of the Court of Appeals, setting
aside orders of the Court of First Instance of Rizal; as well as a resolution promulgated by the
Appellate Court, denying petitioner's motion for reconsideration.

The factual antecedents are as follows. Wearever Textile Mills, Inc., herein respondent, discounted
and assigned several receivables with Makati Leasing and Finance Corporation, herein petitoner,
under a Receivable Purchase Agreement. To secure the collection of the receivables assigned,
respondent executed a Chattel Mortgage over certain raw materials inventory including machinery
described as an Artos Aero Dryer Stentering Range. Upon respondent's default, petitioner filed a
petition for extrajudicial foreclosure of the properties mortgage to it. However, the Deputy Sheriff
assigned to implement the foreclosure failed to gain entry into private respondent's premises and
was not able to effect the seizure of the aforementioned machinery.

Acting on petitioner's application for replevin—a procedure whereby seized goods may be
provisionally restored to their owner pending the outcome of an action to determine the rights of
the parties concerned; the lower court issued a write of seizure, the enforcement of which was
however restrained upon respondent's filing of a motion for reconsideration. After several other
incidents, the lower court finally issued an order that lifted the restraining order to enforce the writ
of seizure, and an order to break open the premises of respondent's to enforce said writ. Upon
gaining entry, the enforcing sheriff removed the main drive motor of the subject machinery.

However, the Court of Appeals set aside the orders of the lower court and ordered the return of the
seized drive motor, ruling that the machinery in suit cannot be the subject of replevin, much less of
a chattel mortgage, because it is a real property pursuant to Art. 415 of the Civil Code.

Respondent argued that the instant petition was rendered moot and academic by petitioner's act of
returning the subject motor drive of respondent's machinery after the Court.

Petitioner argued that respondent is estopped from claiming that the machine is real property by
constituting a chattel mortgage thereon.
ISSUE/S 1. Whether or not the subject machinery is a real property or a personal property to subject it to
chattel mortgage
2. Whether or not respondent is estopped from claiming the machine as real property

RULING/S
1
 PROPERTY
1. The subject machinery is considered as a personal property considering that a chattel
mortgage was constituted on said machinery.

The Court found application of the Tumalad doctrine in the present case. It was held that
although a building is by itself an immovable property, parties to a contract may treat as
personal property that which by nature would be real property, and it would be valid and
good only insofar as the contracting parties are concerned. By principle of estoppel, the
owner declaring his house to be a chattel may no longer subsequently claim otherwise . In a
more specific parallelism, the Court said that if a house of strong materials may be considered
as personal property, then there exists no reason for machinery—which is movable in its
nature and becomes immobilized only be destination or purpose— not to be likewise treated
as such.

Moreover, the Court emphasized that the characterization of the subject machinery as
chattel by the private respondent is indicative of intention and impresses upon the property
the character determined by the parties. This is in congruence with the ruling in Standard Oil
Co. of New York vs Jaramillo which established that parties to a contract may by agreement
treat as personal property that which by nature would be real property, as long as no interest
of third parties would be prejudiced thereby.

2. The respondent's argument is without merit.

Respondent's contention that estoppel cannot apply against it because it had never
represented nor agreed that the machinery in suit be considered as personal property but
was merely required and dictated on by petitioner to sign a blank form lacks persuasiveness.
First, the status of said machinery was never placed in issue before the lower and appellate
courts. Second, assuming arguendo said claims were true, such fact alone does not render a
contract void ab initio, but can only be a ground for rendering said contract voidable or
annullable pursuant to Art. 1390 of the Civil Code. No such proper action in court annulling
said contract has been recorded. Lastly, respondent has indubitably benefited from said
contract. Equity dictates that one should not benefit at the expense of another. Private
respondent could not now therefore, be allowed to impugn the efficacy of the chattel
mortgage after it has benefited therefrom.